Export Control Blog

Update Day 1: Deemed Export

Once again courtesy Doug Jacobson of International Trade Law News, here is a write-up of today's deemed export breakout:

Alex Lopes, Director, Deemed Exports and Electronics Division

Alex introduced the program by saying that compared to three years ago, everyone now knows what a deemed export is. They have come a long way in raising issue of awareness in deemed exports.

--Alex noted that three years ago BIS had few outreach events on deemed exports, which were limited to small number of companies in high-tech industries. BIS now conducts 120 outreach events per year. Increased staff in Deemed Export Division has helped their efforts (staff has doubled over the past few years).

--He noted that as a result of Inspector General’s report BIS has spent the last few years working on deemed export issues.

--Next, Alex introduced the members of the panel, which included:

• Rolf Migun, Manager of export controls compliance at the Oak Ridge National Laboratory
• Marcus Cohen, Senior Intelligence Analyst at BIS Office of Enforcement Analysis – Authored deemed export propose rule and withdrawal notice.
• Todd Willis, Senior Policy Analyst, BIS Deemed Exports and Electronics Division

--After the introduction, Alex discussed the deemed export year in review.

--Congress authorized an increased budget for deemed export compliance activities, which resulted in an increase in BIS deemed export staff from three to six.

--BIS published two deemed export related Federal Register notices in FY 2006, which included the withdrawal of the deemed export proposed rule and establishment of the DEAC, the Deemed Export Advisory Committee.

--BIS received 840 deemed export applications in FY 2006. BIS approved most applications received and less than 1% were denied. Almost 60% of the deemed export licenses received were for PRC foreign nationals, followed by India (13%), Iran (7%), Russia and Germany (2% each) and UK (1%).

--While some applications languish, most deemed export licenses are processed in 40 days (down from 70+ days a few years ago).

-Next, Alex discussed the clarification of "use" technology. This was a result of the OIG report indicating there was confusion in this area and suggested that BIS change definition. BIS did not change the definition, but provided clarification in the FR notice. The confusion related to the connector "and" in the definition. Applies to "required" technology, which means that it is peculiarly responsible for item to be export controlled. The May 31, 2006 Federal Register notice states that all six elements are required for "use" requirement to apply.

--Technology that is publicly available is classified as EAR99 and is not subject to licensing requirement in most cases (exceptions are Cuban-born nationals or prohibited uses). Take a look at the Q&As on BIS website regarding "use" technology issues.

--In the May 31, 2006 FR notice, BIS reaffirmed existing policy with respect to third-country nationals, rather than using OIG’s suggestion of using country of birth. The existing policy is based on most recent established citizens or permanent residence. U.S. citizens, green card holders, are not subject to deemed export licensing requirements.

--Scope of "fundamental research" also remains unchanged. Fundamental research exclusion based on technology that is ordinarily shared with scientific community. May be instances where preexisting controlled technology may be used and therefore deemed export requirements may come into play. Certain controlled fundamental research that is protected (placing a box around the research or technology), may be subject to the EAR. See the BIS advisory opinion on patents on research.

--Deemed Export Advisory Committee (DEAC). Purpose of the DEAC is to base policy on collaboration with affected communities. DEAC met for first time last Thursday. Program is only chartered for one year and is expected to make its recommendation by next Fall. Will meet several times over the next few months to get various perspectives and comments. Meeting will be published in FR in advance.

Update Day 1: Kickoff Plenary

8:33am And it begins...and there's a theme -- it's "a decade of change". (I voted for moonlight & roses, but alas...)

8:36 Office of Exporter Services Director Eileen Albanese says the new and improved SNAP, SNAP-R, is live. I'll have to check that out.

8:38 Acting Under Secretary for Industry and Security Mark Foulon fast facts -- he's a Rhodes scholar and previously worked for a Democratic senator.

8:41 Foulon says BIS "committed to explaining what we are thinking in a direct, unvarnished manner and listening to what you say in return", but "listening does not always lead to full agreement".

8:42 Last year saw a 13% jump in applications, processed in average of 33 days, for about $36 billion in value.

8:44 Highlights cooperation w/China and India. Very brief mention of the proposed China military end-use rule. (BIS published additional guidance on this subject just last Friday.)

8:46 Last year: 34 criminal convictions and over $3 million in criminal fines; 104 administrative cases and $13+ million in penalties.

8:48 MF's turn at the annual airing of regulators' grievances about the failure to renew the EAA noted, but not particularly emphasized.

8:54 Newly-confirmed Assistant Secretary for Export Administration Christopher Padilla takes the podium.

8:57 Themes for CP's talk: 1) evolving nature of security threat, 2) globalization of high-tech R&D, 3) need to cooperate internationally on export controls. (There are similarities here to his statement to the Senate committee evaluating his nomination.)

9:00 BIS will expand the Validated End-User (VEU) license exception, which originated in the proposed China rule, to India and possibly other countries. This is potentially significant, depending on precisely how VEU shapes up.

9:04 Padilla says about the proposed China rule that it's "simply wrong to call this a catch-all" since it only applies to specific circumstances. He plans to visit allies to encourage them to take similar measures.  Count me among the skeptics that such an effort will bear much fruit.

9:06 Creating an intelligence liaison in his office who will work with a new interagency working group to evaluate end-users.

9:10 CP: "I will go to China"...to put on an export control seminar.

9:15 Now up -- a panel discussion moderated by Deputy Assistant Secretary for Export Administration Matthew Borman.

9:26 State's Deputy Assistant Secretary for Threat Reduction, Export Controls, and Negotiations, Acting Donald A. Mahley offers the story of bad end-user in a MTCR member country, which came under heat and moved next door to another MTCR state, which also shut it down.

9:28 Increase in membership of multilateral export control regimes is both good news and bad news. Bad news is the "least common denominator" problem -- unserious states "hogtie" the regime.

9:31 The DOD rep on the panel, Acting DTSA Director Beth McCormick...

9:34 McCormick says 2006 a banner year for Wassenaar with about 90 percent agreement on member state proposals.

9:39 Working with India and Pakistan on national export control programs. Israel, too, where BM says the government will be promulgating a new, strengthened dual-use export control law. (More on this subject from Israeli business newspaper Globes.)

9:41 Greg Suchan, Deputy Assistant Secretary for Political-Military Affairs, notes that the president can remove Nimitz-class aircraft carriers from the munitions list, but not civilian communications satellites. Also notes that interagency cooperation on export controls used to compare unfavorably to "whale poop", but is now significantly better than aforementioned marine mammal dung.

9:51 Suchan argues that "access to US defense technology is the quid pro quo" for many countries (specifically mentioning India) in a positive national security relationship with the US, as opposed to during the Cold War when many other tools were more available to US policymakers (troop deployments, security aid, etc.).

9:53 Says Israelis scooped up a lot of arms provided by many countries, including some "really good stuff", fired by Hezbollah during this past summer's war.

9:55 119 people arrested last year for Arms Export Control Act violations.

9:58 GS says DDTC's backlog is 10,000 cases! Somewhat more staff, including military officers, increasingly mandatory D-Trade are helping.

10:03 Q: Why does China rule sound so much like EAR National Security controls (on items excluded from such controls)? A: Wassenaar members can take action on "non-listed dual-use items".

10:05 Q: How can industry and gov't cooperate? A: We all have programs, GS says State trying to RWA less by working with applicants, increasing automated validation of application details in D-Trade.

10:06 That's it -- next stop is that ol' chesnut, encryption, in a breakout session scheduled for 10:30.

Aren't They Landlocked?

The Kazakh border patrol's new US-funded watercraft is just one tidbit from the Center for International Trade & Security's latest newsletter. Read it all. And while you're at their site, check out this updated assessment (pdf) of India's export control system

Export, etc. 1/6/06

• Julie Myers, late of BIS, gets a recess appointment to ICE
• Iran scrounging for nuke tech in Europe (via Sudan?)
• OFAC resumes publication of civil penalty info
• DDTC website on the move
• British MP says EU China embargo here to stay
• An Indian argues against US-India nuclear cooperation
• So that's what Ashcroft's doing these days
• BIS head McCormick to speak in California Jan. 12
• Finns mystified by Dell compliance efforts: "What in the world is this all about?"

INA Gonna Sanction Somebody

Unwilling as usual to take what flows from the pens of Bill Gertz (Washington Times) and David Sanger (NYT) as the final word on anything, Jeffrey Lewis has been doing a bit of digging into the recent imposition of Iran Nonproliferation Act sanctions on two Indian companies -- Sabero Organics Gujarat and Sandhya Organics Ltd. Get the full details on ArmsControlWonk, but basically Jeffrey had the crazy (to major media reporters at least) idea to just email the Indian firms and ask them what they sold to Iran. Even more crazy, he got a prompt response: phosphorus oxychloride. Which raises the question: what is it?

Phosphorus oxychloride (US Export Control Classification Number 1C350.c.3) is a chemical weapons precursor. It's on the least restrictive of the three Chemical Weapons Convention schedules -- the one for stuff that may be produced in large commercial quantities for applications not banned under the convention. In other words, this chemical has a lot of innocuous industrial uses -- something the framers of the CWC recognized.

India and Iran are both parties to the CWC so there's no obligation under that agreement for the Indian exporter to even obtain an end-use certificate from their Iranian customer, let alone an overarching export prohibition.

Phosphorus oxychloride is also on the Australia Group control list. India does not participate in the AG, although supposedly they do subject most items on the AG list to their own national export controls. What that means on a practical basis -- what is permitted to be exported where and how effectively the laws are enforced -- I have no idea. Obviously though the export of phosphorous oxychloride to Iran is not a problem.

Of course if the chemical is of US origin (or contains controlled US content exceeding 10 percent by value) then its shipment from India to Iran would violate the unilateral US embargo, which prohibits many reexports of US items from third countries to Iran. But I haven't seen any USG statements yet accusing the Indian firms of violating the embargo per se.  Rather, they hang their hat on the INA -- a nifty statute which doesn't require evidence of embargo violations for sanctions to kick in. "Credible information" that a "foreign person" transferred any number of nuclear, chemical, biological or missile proliferation-assisting items to Iran is all that's required. The country of origin of those items is irrelevant.

This is all going to remain pretty fuzzy unless someone from the US Government clarifies things or additional enforcement actions (requiring the public disclosure of more evidence) are pursued against the Indian companies.

UPDATE: Lewis has more, including details on the chemical exported by the second Indian firm -- trimethyl phosphite -- the export control status of which is similar to phosphorus oxychloride. Also, today the Federal Register published the State Department's official notice of the sanctions. Among other penalties, no military exports are permitted to these companies and no dual-use export licenses will be issued for shipments to them.

Export, etc. 12/23/05

• Political prisoner's brother slams US Libya policy
• As baseball reapplies for license from OFAC, Puerto Rico may refuse to host in protest of initial exclusion of Cuba (check out Ivo Daalder on this, here too)
• Canucks strengthen nuclear export controls
• India's foreign secretary defends nuclear deal with US (transcript (pdf); also Jeffrey Lewis)
• "China things"
• Syrian official blusters about self-sufficiency
• Israel Aircraft Industries hires export control lobbyist
• Most lowbrow AECA case ever
• North Koreans pull out of Macau
• Get your Hugo Chavez action doll before the feds announce an embargo

Bush Hearts China Choo-Choo

Well, this doesn't happen every day:

TO THE CONGRESS OF THE UNITED STATES:

In accordance with the provisions of section 1512 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261), I hereby certify that the export of 36 accelerometers to the People's Republic of China's Ministry of Railways, for use in a railroad track geometry measuring system, is not detrimental to the U.S. space launch industry, and that the material and equipment, including any indirect technical benefit that could be derived from such export, will not measurably improve the missile or space launch capabilities of the People's Republic of China.

GEORGE W. BUSH

THE WHITE HOUSE,

December 14, 2005.

Why was this necessary?  The reason is straightforward enough -- a law requires the president to certify that missile technology exports to China will neither harm the US space launch industry nor improve the Chinese space launch or missile programs (FYI on the late 90's scandals which prompted this legislation.) Accelerometers are key to missile inertial navigation system design so it's not surprising that the government has long held the reins on their export via its military (US Munitions List Category XII(d)) and dual-use (Commerce Control List Category 7) export control lists.

Asher Karni (remember him?) made at least some effort to obtain accelerometers from Columbia Research Laboratories and Crossbow for his customer (and Entity List honoree) Vikram Sarabhai Space Center in India.

Don't tell Dana.

Export, etc. 12/16/05

• US still contemplating Raytheon AESA radar export to India
• EU arms embargo on China, um, not really
• Former North Carolina state senator pleads guilty to contravening EAA in China, Hong Kong shipments (earlier)
• Aerospace Industries Association head expects little improvement (pdf, p. 8) in US export control environment in remaining three years of the current administration
• In an always tough contest, DDTC's notice on form expiration dates wins the award for most boring export control news of the week
• Farm state congressmen line up to oppose OFAC payment-in-advance rule for Cuba as Maine governor inks agricultural deal in Havana
• UAVs for UAE: denied Predators by US, gulf state builds its own for domestic use and export
• New Yorker sentenced for small arms shipments
• Stumped for holiday gift ideas? How 'bout a Kim Jong-il t-shirt?

Export, etc. 12/9/05

• British anxiety over JSF tech transfer
• Excellent analysis of how UN sanctions would affect Syria
• EU's China embargo "an anachronism" says Chirac
• Encyption software exporter Bluefire gets a visit from OEE
• NoKo to US: No six party talks until you drop latest sanctions
• Feds win one, lose one in Iran embargo trial
• Heritage researchers say ITAR in the way of civilian MANPADS countermeasures
• Further reporting that deemed export crackdown won't go too far (or not)
• Guilty plea in Seattle night vision case
• OFAC blocks assets of German prisoners
• McCormick gushes over US-India satellilte navigation cooperation (full text)
• Post-embargo, Indonesions on US arms spending spree
• BIS posts guidance on newly-created License Exception USPL (US Persons in Libya)
• Now that's a creative way to protest an embargo (for the ladies)

ACT November

The latest version of Arms Control Today is up and, as always, there's much to recommend.  Wade Boese details the reaction of Nuclear Suppliers Group members to US proposals to upgrade civilian nuclear cooperation with India.  And you'll want to pay special attention to a timely analysis of multilateral export controls from former Commerce Department director of Strategic Trade and Foreign Policy Controls Jim Lewis.

All that and an index that's bound to make you wonder how you possibly missed so much relevant writing last month.